Saturday, August 19, 2006

Will Armstrong Get Credit for His Time in Jail for Civil Contempt?

Martin Armstrong has spent almost the entire 21st century in jail, having been sent there in January 2000 because he was found in civil contempt for refusing to turn over assets in an SEC securities fraud action.  Armstrong was a money manager who founded Princeton Economics International, and he was accused in parallel criminal and civil cases of defrauding Japanese investors of over $700 million.  Despite repeated attempts to get out of jail on the ground that the civil contempt was ineffective, U.S. District Judge Richard Owen -- backed by the Second Circuit -- refused to let Armstrong leave the Metropolitan Correctional Center in New York for over six years, no doubt a record for the longest civil contempt in federal court history.  Now, Armstrong has finally entered a guilty plea to a charge of conspiracy to commit securities and wire fraud, and he will be sentenced in January 2007 by U.S. District Judge John Keenan, who presided over the criminal case that was set to go to trial in October.   A Bloomberg story (here) discusses the plea agreement.

Even after the guilty plea, it remains an open question whether Armstrong will be let out of jail on the civil contempt, and whether the court will take into consideration his 6+ years in jail.  On the latter issue, federal law permits the imposition of a civil contempt that interrupts a criminal sentence, and there is no requirement that the time spent in jail on the civil contempt be counted toward the criminal punishment, although Judge Keenan is free to do so in setting the sentence.  The reason why the civil contempt does not count lies in the difference between a civil contempt, which is viewed as coercive, and a criminal sentence, which is punitive.

The person held in civil contempt "holds the keys to the jail cell" according to the old adage, which means the person can "purge" the contempt by complying with the court's directive.   Most cases in this area involve individuals who have received immunity but continue to refuse to testify, and they can get out of the civil contempt simply by testifying.  One of the seminal decisions is United States v. Liddy, 510 F.2d 669 (19774), involving Watergate burglar G. Gordon Liddy -- how's that for a blast from the past -- who refused to testify before the Watergate grand jury despite an immunity grant.  In rejecting his argument that the civil contempt could not interrupt his service of the criminal sentence, the D.C. Circuit stated:

The coercive impact of confinement for civil contempt results from the fact that the contemnor 'carries the key to the jailhouse door in his pocket,' that is, he can procure his release at any time by agreeing to comply with the court order whose violation is the basis of his contempt. Had the District Court ordered that Liddy's contempt confinement be concurrent with his sentence for Watergate crimes, Liddy would have no incentive to comply with the District Court's order since his doing so would not reduce his total period of confinement. Therefore, the District Court was manifestly justified when it stated: "To give meaning and coercive impact to the Court's contempt powers in the interest of protecting the Court's integrity, the Court here finds it necessary to hold in abeyance the execution of Mr. Liddy's sentence under the indictment pending his confinement for contempt."

Armstrong faces a maximum sentence of five years on the conspiracy charge, and under the federal Sentencing Guidelines if the loss is even 10% of what the government alleges he will be in a sentencing range that will easily take him to the full five years.  Whether he gets the benefit of having spent six years in jail already poses an interesting question because he has not, to this point, agreed to cooperate in the SEC enforcement action that triggered the civil contempt.  He has, however, shown a resolve that likely would make G. Gordon Liddy proud. (ph)

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Civil Enforcement, Fraud, Prosecutions, Securities | Permalink

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In 1999, the SEC alleged that Martin A. Armstrong and his companies "fraudulently offered and sold at least $3 billion in high-yielding, fixed-term promissory notes... [Read More]

Tracked on Aug 24, 2006 7:27:40 PM

Comments

If I don't misremember, the 'cure' here is for Armstrong to surrender some $15m in gold bars, now $30m if the $15m is at 2000 gold prices. While I have no insight whether Armstrong's assertion that he no longer had them to surrender is plausible, if not, he kept himself in jail so that his family could have that portion of his ill-gotten wealth instead.

If I could get $15m for spending six years in jail, I might consider it if, unlike Armstrong, I were going to get out after.

Posted by: wcw | Aug 19, 2006 1:30:44 PM

A freudian slip of the keyboard? The case against G. Gordon Liddy was spelled "United States v. LiBBy"...

Posted by: Sean | Aug 20, 2006 10:40:05 PM

A slip of some kind, but sometimes a cigar is just a cigar. Thanks for noticing it, Sean, and I corrected the case cite.

Posted by: Peter Henning | Aug 21, 2006 3:08:13 AM

Christmas in August---a 5 year cap via a conspiracy count in this case.

Why a plea? This case should have either been tried or dismissed.

Am starting to re-think the sentence for WorldCom's Bernie Ebbers

Posted by: Moe Levine | Aug 21, 2006 10:28:40 AM

The thing to remember about Armstrong is he didn't "steal" money per se. Rather he "lost" money through repeatedly brazen wrong-footed trading ineptitude. Admittedly there was much that was fraudulent about the man & his wares, but show me an American resume or restaurant menu that doesn't suffer from inflationary or descriptive misrepresentaton. And admittedly, rather than 'fess up' to losses he used the ponzi method of borrowing from new accounts to pay old accounts to keep the balls in the air, but not for skimming purposes. Complicating things is that his Japanese corporate clients were themselves concealing losses that resulted from their own wrong-footed ineptitude which is why they sought out Armstrong in the first instance. Most have been fortunate to "pin-the-tail-onthe-donkey" and blame Armstrong for ALL their losses, when he was responsible for only some of them.

I have sympathy for the man only in as much the distance between his mind and objective reality was seemingly vast. Yet, it was no where near the cynicism & scale of say BCCI or other bona-fide mega-frauds...

Posted by: Cassandra | Aug 22, 2006 7:30:46 PM

Martin Armstrong should be given credit for the SEVEN YEARS he has already spent in prison because it was not proven that he was guilty when they put him in prison on contempt of court as he was not handing over gold, art and hard drives.

You are innocent until proven guilty in a court of law, Armstrong was denied a speedy trial as the constitution guarantees and it was not proven that he got the demanded items from the management of the Japanese money, as he had been in business for several decades and was quite successful - it is likely that the demanded items were purchased years before the accounting problems with the management of the Japanese money manifested.

He should also not have to turn over his multi-million dollar super computer model/database for free to the same government (USA/CIA) that demanded he share it with them in 1999 for free.

Let the man go, he has suffered enough, he is almost 60 now, what are they trying to kill him?

Posted by: Lee | Jan 3, 2007 5:28:42 PM

QUOTE
"He should also not have to turn over his multi-million dollar super computer model/database for free to the same government (USA/CIA) that demanded he share it with them in 1999 for free.

"Let the man go, he has suffered enough, he is almost 60 now, what are they trying to kill him?"
END QUOTE

If necessary, governments kill to obtain what they highly cherish. Most adults not raised in a cave know that. Governments are therefore indistinguishable from other well known, well armed organizations equally willing to kill for gain which lack only the color of law to conceal their agenda and immunize their paid agents from prosecution.

Going to such an extreme is, however, considered "bad for business", so less violent measures are preferred until they prove ineffective. The self-declared "fund raiser" conducted at Ruby Ridge by the BAFT is perhaps the most recent and blatant example of that risk -- as a jury quickly concluded with little debate. Mrs. Reno, top enforcement official in the US, thought it would be "regrettable" if murder charges were brought against the government paid snipers who pulled the trigger in cold blood. Why, one cannot imagine. But that's what we've come to.

So could we be witnessing a no less cynical (if less risky) "operation" ongoing in the Armstrong case? I have no idea. But established fact suggests no possible USG action -- at home or abroad -- can now be thought inconceivable.

Posted by: Bud Hovell | Apr 20, 2007 11:15:39 AM

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